Federal statutory provisions on enrollment, reimbursement, and physician referral conflicts
This document excerpts federal statutory provisions governing phased enrollment periods, stabilization fund rules, reimbursement for services under Medicare risk contracts, and physician referral/financial relationship prohibitions and exceptions; it applies to entities and providers subject to these federal statutes.
Policy Summary
PayerEmblemHealth
PolicyFederal statutory provisions on enrollment, reimbursement, and physician referral conflicts
Policy CodePolicy N/A
Change TypeNo material changes
Effective DateN/A
Next Review DateN/A
Key ActionDo not submit or bill for designated health services resulting from prohibited physician referrals; ensure required ownership and compensation disclosures to the Secretary.
No material clinical or coverage changes in this revision.
30-day30-day
3 yrs3 years
$75,000,000$75M
15,000$15,000
100,000$100,000
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75%
75%
Coverage, Reimbursement, and Exception Criteria
Medicare reimbursement notes
Reimbursement rules for organizations with Medicare contracts and temporary payment arrangements.
Organizations with Medicare risk-sharing contracts are reimbursed under section 1876 for the duration of their contract.
For members of organizations that entered into risk-sharing contracts prior to July 1, 1973, who elected not to have payment made under section 1876, the Secretary may pay interim per-capita rates for a period not to exceed three years beginning July 1, 1973, with appropriate actuarial adjustments reflecting out-of-plan utilization.
Payments made under the interim per-capita arrangement are subject to retroactive adjustment at the end of each contract year; resulting savings or losses are allocated between the organization and the Federal Hospital Insurance and Supplementary Medical Insurance Trust Funds as prescribed in section 1876(a)(3).
Stark law prohibitions and exceptions
Prohibitions and statutory exceptions governing physician referrals and financial relationships.
Prohibition: If a physician (or an immediate family member) has a financial relationship (ownership/investment interest or certain compensation arrangements) with an entity specified in statute, the physician may not refer Medicare-payable designated health services to that entity, and the entity may not bill for services resulting from such prohibited referrals.
Exceptions include
Physicians' services provided personally by the referring physician or under personal supervision within the same group practice (subject to group practice rules).
In-office ancillary services furnished personally or under direct supervision in specified locations and billed by the physician, group practice, or wholly owned entity that meet other Secretary-imposed safeguards, including written patient notice for certain imaging services.
Rental of office space where the lease is written and signed, specifies the premises, is for at least 1 year, rents set in advance consistent with fair market value, not determined by referral volume/value, commercially reasonable absent referrals, and meets other Secretary requirements.
Exceptions, requirements, reporting, and sanctions
Exceptions permit remuneration or arrangements that would otherwise be prohibited when specified statutory conditions are satisfied; reporting and sanctions apply for violations.
Personal services and compensation arrangements: Remuneration under an arrangement must be in writing, signed, specify services, cover all services to be provided, be reasonable in aggregate, have a term of at least one year, and compensation set in advance consistent with fair market value; generally compensation must not be determined by referral volume/value except as permitted for physician incentive plans with safeguards.
Physician incentive plans: Compensation that may account for referral volume/value is allowed if the plan meets statutory requirements (no inducement to reduce medically necessary services; compliance for plans that place physicians at substantial financial risk; provide descriptive information to Secretary on request).
Remuneration unrelated to designated health services: Remuneration provided by a hospital to a physician that does not relate to the provision of designated health services is excepted.
Hospital-group longstanding billing arrangements: Arrangements where a group provides designated health services but the hospital bills may qualify if the arrangement began before Dec 19, 1989 and continues uninterrupted, substantially all services are furnished by the group, is written, compensation consistent with fair market value and fixed per unit, commercially reasonable absent referrals, and meets Secretary requirements.
Hospital ownership and conflict-of-interest requirements
Requirements for hospitals to qualify under subsection provisions and related limitations:
Provider agreement and ownership requirement: To qualify, the hospital had physician ownership or investment on December 31, 2010 and a provider agreement under section 1395cc in effect on that date.
Limitation on expansion: Except as provided by the exception process, the number of operating rooms, procedure rooms, and licensed beds on or after March 23, 2010 must not exceed the counts as of that date.
Conflict-of-interest and disclosure controls: Hospitals must submit annual reports to the Secretary identifying physician owners/investors and other owners, require referring physician-owners to disclose ownership to patients in time for meaningful decision-making, must not condition ownership on referrals, and must disclose physician ownership on public websites and in public advertising.
Capacity and compliance criteria
Baseline restrictions and compliance obligations for hospitals:
Capacity freeze: No increase in licensed operating rooms, procedure rooms, or beds after March 23, 2010 except as provided by the statutory exception process.
Annual ownership reporting and public disclosure: Hospitals must annually report detailed physician ownership and investment information to the Secretary, disclose physician ownership on websites/advertising, and ensure referring physician-owners disclose ownership to patients prior to referral.
Investment safeguards: Aggregate physician ownership percentage cannot exceed the March 23, 2010 level; offers to physician investors must be on no more favorable terms than to non-physicians; hospitals and owners may not provide loans, guarantees, subsidies, or favorable purchase/lease terms to physician investors; returns must be distributed proportional to ownership.
Patient safety requirements: If no physician is available on the premises during hours services are provided, the hospital must disclose this to the patient and obtain a signed acknowledgment, provide assessment and initial treatment capacity, and have the ability to refer/transfer patients as necessary.
Exception increase parameters
Rules governing scope of permitted increases when an exception is granted:
Exception authority: An applicable hospital granted an exception may increase licensed operating rooms, procedure rooms, and beds above the baseline (or above the count after the most recent prior exception).
Cap on increases: The Secretary shall not permit increases that would result in licensed counts exceeding 200% of the baseline number of operating rooms, procedure rooms, and beds.
Baseline definition: Baseline equals the number of licensed operating rooms, procedure rooms, and beds as of March 23, 2010 (or, for hospitals without a provider agreement on that date but with one by Dec 31, 2010, the effective date of such provider agreement).
Location limitation: Any increase under the exception is limited to facilities located on the hospital's main campus.
Ownership reporting and enforcement
Statutory requirements and clarifications related to collecting ownership information and enforcement authority.
Collection requirement: The Secretary shall collect physician ownership and investment information for each hospital to support subsection implementation and oversight.
Definition: 'Physician owner or investor' includes a physician (or an immediate family member) with a direct or indirect ownership or investment interest in the hospital.
Enforcement clarification: Nothing in the subsection prevents the Secretary from revoking a hospital's provider agreement if the hospital is not in compliance with implementing regulations.
SRDP and enforcement criteria
SRDP provisions and factors considered for reduction in amounts owed.
SRDP establishment: The Secretary shall establish a Medicare Self-Referral Disclosure Protocol (SRDP) identifying a specific person, official, or office to receive disclosures, addressing implications for corporate integrity/compliance agreements, and publishing SRDP information on the CMS public website.
Reduction factors: In determining any reduction in amounts owed for violations, the Secretary may consider the nature and extent of the improper practice, timeliness of self-disclosure, cooperation in providing additional information, and other appropriate factors.
Reporting on SRDP: The Secretary must report to Congress within 18 months after establishing the SRDP on numbers of disclosures, amounts collected, types of violations, and other implementation information.
Enforcement actions: The Secretary is authorized to establish compliance policies and procedures, including unannounced hospital site reviews and audits beginning by May 1, 2012.
PRRB appeal criteria
PRRB hearing eligibility and procedural thresholds.
Eligibility: A provider of services that has filed the required cost report within the time specified may obtain a PRRB hearing if dissatisfied with an intermediary's or the Secretary's final determination regarding reimbursement or payment amounts, or if a timely determination was not received as required.
Individual amount-in-controversy threshold: The amount in controversy for individual provider appeals must be $10,000 or more.
Filing deadline: The provider must file a request for hearing within 180 days after notice of the intermediary's or Secretary's final determination (or within 180 days after the date such determination would have been received if it were timely).
Group appeals: Group appeals are permitted where each provider would be individually entitled to a hearing and the matters involve a common question of fact or law and the aggregate amount in controversy is $50,000 or more.
Codes, Thresholds, and Key Numeric Values
Reimbursement referencemixed
References interim per-capita reimbursement methodology for certain organizations with Medicare risk-sharing contracts; payments on interim per-capita basis for up to three years with retroactive adjustment per section 1876 provisions.
Designated health servicesmixed
A
Clinical laboratory services.
B
Physical therapy services.
C
Occupational therapy services.
D
Radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services.
E
Radiation therapy services and supplies.
F
Durable medical equipment and supplies.
G
Parenteral and enteral nutrients, equipment, and supplies.
H
Prosthetics, orthotics, and prosthetic devices and supplies.
I
Home health services.
J
Outpatient prescription drugs.
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1/2
Appeals thresholds and rulesmixed
PRRB_HEARING
Provider Reimbursement Review Board hearing rights: provider may obtain a hearing if dissatisfied with intermediary or Secretary determination and has filed required cost report; individual amount in controversy must be $10,000 or more; request for hearing must be filed within 180 days after notice; group appeals allowed if each provider would be entitled to a hearing and aggregate amount in controversy is $50,000 or more.
Public securities asset/equity threshold — $75,000,000
Threshold$75,000,000 stockholder equity (or $75,000,000 total assets for regulated investment companies) required for publicly traded securities exception
ScopeApplies to securities listed on NYSE, Amex, regional exchanges with daily quotations, recognized foreign exchanges, or securities traded on NASD automated interdealer quotation system
EffectOwnership of such publicly traded securities is not treated as an ownership or investment interest for the prohibition
Baseline definition date
Baseline dateBaseline equals the number of operating rooms, procedure rooms, and beds for which the applicable hospital is licensed as of March 23, 2010
Provider Duties, Exceptions, Reporting, and Application Processes
Billing Rule
Exceptions for in‑office ancillary services and billing
Exception for in-office ancillary services allows certain designated health services (other than DME and parenteral/enteral nutrients, equipment, and supplies) to be furnished and billed without triggering the physician self-referral prohibition when specific statutory conditions are met. Key conditions: the services must be personally furnished by the referring physician, a physician in the same group practice, or individuals directly supervised by the physician (or another physician in the group practice); services must be furnished in a building where the referring physician (or another physician in the same group) provides physician services unrelated to the designated health services, or (for group practice members) in another group-used building for provision of some/all clinical laboratory services or centralized provision of the group's designated health services (other than clinical labs) unless the Secretary determines alternative terms to mitigate risk; and billing must be by the furnishing/supervising physician, the group practice under its billing number, or an entity wholly owned by the physician or group practice meeting any additional requirements imposed by the Secretary to protect against program or patient abuse.
Applies to designated health services except durable medical equipment (excluding infusion pumps) and parenteral/enteral nutrients, equipment, and supplies.
Services must be personally furnished by the referring physician, a physician in the same group practice, or individuals directly supervised by such physicians.
Defined Terms and Exceptions
financial relationship
DefinitionA financial relationship exists when a physician (or immediate family member) has an ownership or investment interest in an entity, or a compensation arrangement with the entity
Ownership scopeOwnership or investment interest may be through equity, debt, or other means and includes interests in entities that hold interests in providers of designated health services
Compensation scopeCompensation arrangements are defined as arrangements involving remuneration between the physician (or immediate family member) and the entity
Physicians' services (group practice) exception
Exception summaryPhysicians' services personally provided by (or under the personal supervision of) another physician in the same group practice are excepted from the referral prohibition
Reference to definition
Policy Summary
PayerEmblemHealth
PolicyFederal statutory provisions on enrollment, reimbursement, and physician referral conflicts
Policy CodePolicy N/A
Change TypeNo material changes
Effective DateN/A
Next Review DateN/A
Key ActionDo not submit or bill for designated health services resulting from prohibited physician referrals; ensure required ownership and compensation disclosures to the Secretary.
Rental of equipment under a written, signed lease specifying equipment, reasonable quantity, term of at least 1 year, charges set in advance consistent with fair market value, not determined by referrals, commercially reasonable absent referrals, and meeting Secretary requirements.
Ownership of publicly traded securities and mutual funds meeting specified exchange listing and corporate size thresholds (not treated as an ownership or investment interest for the prohibition).
Financial relationship defined: an ownership or investment interest (equity, debt, or other means, including indirect interests) or a compensation arrangement as defined in the statute, subject to specific subsection exceptions and definitions.
Reporting requirements and sanctions: Entities must provide ownership, investment, and compensation information to the Secretary; no payment may be made for designated health services furnished in violation of the prohibition; amounts collected that were billed in violation must be refunded; civil money penalties apply for improper claims and circumvention schemes and for failures to provide required reports (including per-day penalties).
Secretary authority: The Secretary may issue binding written advisory opinions and promulgate regulations, as needed, to protect against program or patient abuse.
Conversion exclusion: Hospitals converted from ambulatory surgical centers to hospitals on or after March 23, 2010 are excluded from this subsection.
Alternate baseline for late agreementsIf the hospital did not have a provider agreement in effect on March 23, 2010 but did have one in effect on December 31, 2010, baseline equals the effective date of that provider agreement
Applies toUsed to measure permitted increases under the exception process (caps and calculations reference this baseline)
Individual appeal amount threshold
Minimum amount in controversy (individual)$10,000 required for an individual provider to obtain a PRRB hearing
Eligibility conditionProvider must have filed a required cost report within the time specified in regulations
Timing relationApplies to appeals from intermediary or Secretary final determinations as described in the statute
Group appeal aggregate threshold
Aggregate amount for group appeals$50,000 aggregate amount in controversy required for a group of providers to appeal to the PRRB
Individual eligibility for group appealsEach provider in the group must, upon filing an appeal, be entitled to a hearing (without regard to the $10,000 individual limitation)
Common issue requirementMatters in controversy must involve a common question of fact or interpretation of law or regulations
Appeal filing deadline
Filing deadlineRequest for PRRB hearing must be filed within 180 days after notice of the intermediary's or Secretary's final determination
Applies to multiple appeal typesDeadline applies to notices under paragraph (1)(A)(i) and (ii) and to the constructive-notice timing described for paragraphs (1)(B) and (C)
Relation to cost reportsProvider must have filed the required cost report to be eligible and meet the 180‑day deadline after notice
Services must be furnished either in a building where the referring physician (or another physician in the same group) furnishes unrelated physician services, or, for group practice members, in another building used by the group for certain centralized services as described.
The referring physician (or group practice) must bill for the services — by the physician performing/supervising the service, the group practice under its billing number, or an entity wholly owned by the physician/group practice that meets any Secretary-imposed requirements.
For MRI, CT, PET, and other DHServices the Secretary specifies, the referring physician must provide the patient in writing at the time of referral that they may obtain the services from others and must provide a written list of local suppliers.
Billing Rule
Exceptions for leases and equipment rental
Rental and lease exceptions permit payments for office space and equipment rental to qualify as exceptions to the financial relationship prohibition when specific criteria are met. For office space: the lease must be in writing and signed, specify premises, be for at least one year, limit rented space to that reasonable and necessary for the lessee’s legitimate business purposes (exclusive use when in use, with common area payments limited to pro rata share), set rental charges in advance consistent with fair market value and not take into account referral volume or value, be commercially reasonable even if no referrals occur, and meet any additional requirements the Secretary imposes to protect against program or patient abuse.
Lease must be written, signed, and specify the premises.
Rented space cannot exceed what is reasonable and necessary and must be used exclusively by the lessee when used; common area charges limited to lessee’s pro rata share.
Lease term must be at least 1 year.
Rental charges must be set in advance, reflect fair market value, and must not be determined based on volume or value of referrals/business between the parties.
Lease must be commercially reasonable even absent referrals and meet any additional Secretary-imposed safeguards.
Applies to services as defined in section 1395x(q) where physicians are members of the same group practice (per subsection (h)(4) group practice definition)
ImplicationServices furnished within the group practice are not treated as prohibited referrals under the statute when criteria are met
Publicly traded securities exception
Exception criteriaOwnership of publicly traded securities or shares in regulated investment companies meeting exchange listing and $75,000,000 equity/asset thresholds is not considered an ownership or investment interest
Exchange/listing requirementSecurities must be listed on NYSE, American Stock Exchange, a regional exchange with daily quotations, a recognized foreign exchange with daily quotations, or traded on the NASD automated interdealer quotation system
Investment company ruleShares in a regulated investment company qualify if that company had total assets exceeding $75,000,000 in its most recent fiscal year or on average during the previous 3 fiscal years
Rental of office space
Written lease requirementLease must be set out in writing and signed by the parties and must specify the premises covered
Term and exclusivityLease term must be at least 1 year; space rented must be reasonable and necessary and used exclusively by the lessee when in use (common areas allowed on pro rata basis)
Rent and commercial reasonablenessRental charges must be set in advance, consistent with fair market value, not determined by referral volume/value, and commercially reasonable even if no referrals occur
Rental of equipment
Written lease requirementEquipment lease must be set out in writing, signed by the parties, and specify the equipment covered
Term and quantityLease term must be at least 1 year; equipment rented must not exceed that which is reasonable and necessary and must be used exclusively by the lessee when in use
Rental charges and reasonablenessRental charges must be set in advance, consistent with fair market value, not based on referrals, and commercially reasonable absent referrals
Bona fide employment
Bona fide employment definedEmployment must be for identifiable services with remuneration consistent with fair market value and not determined by the volume or value of referrals
Commercial reasonablenessRemuneration must be provided pursuant to an agreement that would be commercially reasonable even if no referrals were made
Permitted bonusesProductivity bonuses based on services personally performed are not prohibited by subparagraph (B)(ii)
Personal services and physician incentive plans
Written agreement and termPersonal services and compensation arrangements must be in writing, signed, specify services, cover all services to be provided, and have a term of at least 1 year
Compensation and FMVCompensation must be set in advance, not exceed fair market value, and generally not be determined by referral volume/value except under physician incentive plan rules
Physician incentive plansPhysician incentive plans may base compensation on volume or value if safeguards are met (no inducement to reduce medically necessary services; Secretary may impose additional requirements) and the entity must provide plan details on request
Physician recruitment
Recruitment allowanceHospital remuneration to induce a physician to relocate to the hospital's geographic area is permitted if the physician is not required to refer patients to the hospital
Compensation determinationRemuneration must not be determined in a manner that takes into account the volume or value of referrals
Regulatory safeguardsArrangement must meet other requirements the Secretary may impose by regulation to protect against program or patient abuse
Isolated transactions
One-time transactionIsolated transactions (e.g., one-time sale of property or practice) are excepted if employment-like requirements are met
Employment-like requirementsRequirements described in subparagraphs (B) and (C) of paragraph (2) must be met with respect to the entity as they apply to an employer
Secretary requirementsTransaction must meet such other requirements as the Secretary may impose by regulation to protect against program or patient abuse
compensation arrangement; remuneration
Broad definition'Compensation arrangement' means any arrangement involving any remuneration between a physician (or immediate family member) and an entity
Remuneration scope'Remuneration' includes any remuneration directly or indirectly, overtly or covertly, in cash or in kind
Excluded items examplesCertain items are specified as remuneration exceptions (e.g., forgiveness of amounts for inaccurate tests, provision of specimen collection supplies, insurer payments under specified conditions)
employee
Employee definitionAn individual is an employee if considered an employee under the usual common law rules applicable for section 3121(d)(2) of the Internal Revenue Code
Legal standardDetermination relies on common-law employer-employee relationship tests rather than a statutory presumption
RelevanceUsed to determine applicability of the bona fide employment exception and related provisions
fair market value
Fair market value definitionFair market value means the value in arm's length transactions consistent with general market value
Rental/lease specificityFor rentals or leases, FMV is the commercial rental value for general commercial purposes and, for space, is not adjusted for proximity or convenience that would relate to referrals
Use in exceptionsFMV standard is required for rental, lease, and compensation exceptions to ensure amounts are not referral-driven
group practice
Group practice criteriaGroup practice means 2+ physicians legally organized where members provide substantially the full range of services through shared resources, bill under a group billing number, and distribute income/overhead by pre-determined methods
Compensation limitsGenerally, no physician in the group may receive compensation directly related to the volume or value of referrals (with specified exceptions for productivity bonuses)
Clinical participationMembers must personally conduct at least 75% of the physician-patient encounters of the group practice
specialty hospital
DefinitionSpecialty hospital is a subsection (d) hospital primarily or exclusively engaged in cardiac, orthopedic, surgical, or other Secretary‑designated specialized services
Exceptions and limitsCertain hospitals in operation or under development as of Nov 18, 2003 are excluded; physician investor counts and bed increases after that date are restricted (e.g., bed increases limited to 50% or 5 beds, whichever greater)
Secretary authoritySecretary may specify other requirements to determine specialty hospital status
procedure rooms
Included roomsProcedure rooms include rooms where catheterizations, angiographies, angiograms, and endoscopies are performed
ExclusionDoes not include emergency rooms or departments except for rooms within them where the listed procedures are performed
ContextTerm used to define capacity limits and baseline counts for hospitals under the exception process
applicable hospital / high Medicaid facility
Applicable hospital criteriaHospital located in a county with population growth at least 150% of the State's 5‑year growth, with high Medicaid inpatient share, non‑discriminatory practices, lower-than-national-average bed capacity in State, and above‑average bed occupancy
High Medicaid facility criteriaNot sole hospital in county; has higher percent of Medicaid inpatient admissions than other hospitals in county for the most recent 3 years; meets non‑discrimination condition
UseThese criteria determine eligibility to apply for capacity increase exceptions
physician owner or investor
Definition'Physician owner or investor' means a physician (or an immediate family member) with a direct or indirect ownership or investment interest in the hospital
ScopeIncludes both direct and indirect interests and immediate family members of physicians
RelevanceTriggers reporting, disclosure, and ownership‑limit requirements under the statute
Medicare Self-Referral Disclosure Protocol
SRDP definedMedicare Self-Referral Disclosure Protocol (SRDP) is a protocol established by HHS to enable providers and suppliers to disclose actual or potential violations of section 1877
ContentsSRDP must identify a specific person, official, or office for disclosures and provide instruction on implications for corporate integrity and compliance agreements
PublicationSecretary must post SRDP information on the CMS public website
PRRB
PRRB definedProvider Reimbursement Review Board (PRRB) is the Board established by the Secretary to hear disputes from providers of services that have filed required cost reports
AuthorityPRRB hears appeals from providers dissatisfied with intermediary or Secretary determinations regarding program reimbursement or payments computed under specified sections
Eligibility noteProvider must have filed a required cost report within regulatory time frames to obtain a hearing